More and more risk managers are considering multi-year insurance contracts as a way to lock in beneficial terms, conditions, and pricing before today's soft market hardens. Before you make a decision, consider these facts.
For additional detail, see Considerations for Multi-Year Insurance Contracts.
Advantages
- Locks in favorable rates and coverages. Some insurers are slashing rates as much as 25% to attract buyers, so the long-term potential for savings can be significant.
- Lessens hassle. Because multi-year policy renewal dates are several years apart, you'll avoid the time-consuming, costly process of annual policy renewals.
- Strengthens relationships. A multi-year policy can help build long-term relationships among you, your agent, and your insurer, which may result in better rates, terms, conditions, or claims service than with single-year coverage or a three-year cancelable policy.
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You may also find it helpful to review Understanding Umbrella Policies and Risk Management when comparing long-term options and overall program structure.
Downside
- Vulnerability to market timing. A multi-year contract leaves you locked in to specific terms, conditions, and rates for an extended period, which can be frustrating if the cost of coverage continues to fall.
- Cancelable or adjustable rates. Many "non-cancelable, multi-year" policies include clauses that give the insurer an out; even non-cancelable policies might allow rate increases tied to loss history or other factors.
- High up-front costs. The entire premium is often due at inception. Attractive premium-financing terms may be available, but opportunity costs for your company's internal funds can offset premium savings.
- Fragility of the relationship. Relationships grow from trust and experience over time, not from a single multi-year policy written by an insurer with whom you have little history.
True guaranteed-rate, non-cancelable, multi-year policies can provide benefits not available with traditional annual policies. However, in some cases these offerings may be primarily marketing tools intended to attract buyers with the promise of savings.
For an evaluation of your situation, feel free to talk to an agent.
Frequently Asked Questions
What is a non-cancelable multi-year policy?
A non-cancelable multi-year policy is an insurance contract that promises coverage and rates for a set period, subject to the specific terms and any insurer-granted exceptions in the policy language.
Can an insurer raise my premium during a multi-year term?
Some policies include clauses allowing rate adjustments for loss experience or other triggers, so always read policy provisions carefully before committing.
What should I watch for before signing a multi-year contract?
Review cancellation and rate-adjustment clauses, premium payment terms, coverage limits, and exclusions, and consider the insurer's financial strength and claims history.
Is a multi-year policy right for every business?
Not necessarily—it depends on your tolerance for market timing risk, cash-flow considerations, and confidence in the insurer relationship.